'Really Un-Tethered?' Bitcoin Price Manipulation Returns With New Research

Evidence suggests that Tether may have been used to manipulate the price of bitcoin

Tether [USDT], one of the most traded cryptocurrencies supported by platforms like Bitfinix, ShapeShift, Bittrex, and Omni, shows an indication of being spent on Bitcoin in its critical moments, according to research by a University of Texas professor.

What is interesting is that Griffin and Shams's paper describes Tether as being primarily used by Bitfinex, a major crypto-exchange, to purchase Bitcoin tokens from two other exchanges and most importantly did this only after periods of Bitcoin price declines.

"Tether seems to be used both to stabilize and manipulate Bitcoin prices", the researchers wrote. The Commodity Futures Trading Commission and the U.S. Department of Justice have been investigating whether bitcoin and other cryptocurrency prices are being manipulated, Bloomberg reported last month. The price of bitcoin fell as much as 5 per cent after the report was published, approaching its lowest point of the year.

In December, the CFTC sent subpoenas to Tether and Bitfinex, a popular cryptocurrency exchange that is affiliated with, and shares executives with, Tether.

According to Griffin, Tether coins are created in large quantities, such as 100m. The researchers relied on the millions of transaction records that are captured on the public ledgers of all virtual currency transactions, known as the blockchain, to spot patterns.

Sarah Meiklejohn, a professor at the University College London who pioneered this sort of pattern spotting, said the analysis in the new paper "seems sound" after reviewing it this week.

Writing in a 66-page report titled "Is Bitcoin Really Un-Tethered?", Griffin and Shams argue that tether, a "stablecoin" that is allegedly backed by Dollars at a 1:1 ratio, has been repeatedly used to provide price support for bitcoin during market downturns. New analysis indicates that this is one of the most important factors that drove bitcoin's rally past year.

The researchers noted that the "bitcoin reversal did not exist before Tether was prevalent in the market and disappears during the period when Tether stops being printed". Later, a whistleblower came forward to confirm those allegations. Since exchanges often face difficulties finding the banking partners and achieving the regulatory compliance necessary to offer fiat-to-crypto trading pairs, many altcoin exchanges use tether as a proxy for physical United States dollars.

"There were obviously tremendous price increases a year ago, and this paper indicates that manipulation played a large part in those price increases".

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